High Performing Business – Planning – Estimates
Michelle LaBrosse, CCPM, PMP, PMI-ACP, RYT
Estimating is a crucial element of my project success. It is the early assumptions made that set most projects in motion. I was thinking about this after the first weekend of my property in Portland being on the market. The first estimate that even started this was with observing very few properties were on the market in Portland (this was an estimate later confirmed by doing research into the current Portland real estate market). I was initially considering renting out both units of the property I now use for my office as we are consolidating locations but after seeing the market forces happening, decided to test a different approach.
I learned it was a seller’s market with many properties selling for 25% over list price in the first week with multiple offers. Since we needed to do the work to put the property into a rent ready condition as temporary office space for visiting execs or people in the business start-up mode anyhow, why not see if we could capture the property buying frenzy happening right now?
This got me thinking about how important early project planning estimates are in the overall success of a project. I had two different estimates done by experts on the property. One by a property management company that gave me three ranges of possible rental rates for each unit based on comparable spaces in the area. The other by a realtor who gave me an initial listing price of the property based on comparable property values. I then had to estimate what it would cost me to ready the property for putting it on the market. It needed interior refreshing on the paint, carpets cleaned, materials that had to be moved to our shipping facility in another state, and the outside landscaping refreshed. And we needed to get all this done in a week as sometimes these buying frenzied markets do not last that long.
When I get estimates from people to do work on properties, I’ve learned the more vague the job requirements, the more vague the estimate. For example, I asked the painter to fix the dings in the walls, door jams, and the posts in the entry. I got an initial estimate but was told – “the posts may need some extra work and it might make sense to repaint the hallways that are fairly dinged up.” So we set up a not to exceed material and labor budget with a bonus for completing the work quickly. It took several phone calls to get a landscaper in post haste and he was able to accomplish his work at the requested budget in the time frame required.
I’ve found when contractors underbid their work they tend to put your projects on the “will get to when things are slow list” – especially if you are moving and they are not sure they can earn repeat business from you. So I made sure we budgeted sufficiently so our project would be on the top of their list.
With the estimates in hand, I apply two different techniques to get a better feel for how to make sure I have the cash flow required. The first technique is a variation of a military planning technique called PERT (Project Evaluation and Review Technique). This requires estimating task time – (p+4m+o)/6 where p = pessimistic estimate (longest time), o – optimistic estimate (least time), m = most likely estimate. When you have costs associated with labor hours, this is a good way to get a more accurate budget estimate. I also used this to get a more statistically accurate estimate for the possible rental payment from the rent comps I received.
Another estimating technique I use is confidence limits – this is how confident is the person giving me the estimate. For example, the painter was 50% confident of the initial bid to fix the posts as there were several unknowns as to the level of repair required. This means the lowest possible bid would be 50% lower and the upper limit of the bid could be on and a half times as much. (starting to sound like a fifth grade math problem). We came up with a work around solution that was actually far less than the original bid (this is what can happen with the confidence limits approach).
I improve my abilities at estimating on a continual basis by reviewing estimates after the fact to see how well I have actually done. I do this monthly on the company’s budgets – reviewing the previous months budget estimates to what we actually generated and spent. Then I adjust the next month’s budgets based on actuals. This helps me develop better instincts for running required projects.
You can learn more about how to do better estimating with a number of Cheetah Learning’s Project Management courses. To find the best course for you – contact a Cheetah Career counselor at 888-659-2013 or email “firstname.lastname@example.org“.